Positive Change: looking back at 2025

As with any investment, your capital is at risk.

Positive Change finished the year with attractive absolute returns (of around 17 per cent net in USD, net of fees) albeit they lagged a strongly appreciated index, resulting in performance of around 5 per cent behind the benchmark (12 months to 31 December 2025).

What do these numbers tell us about the year? On one hand we are pleased to have delivered good absolute returns for our clients and that these returns were underpinned by the operational progress of the companies in the portfolio. One year sales growth in the portfolio has been roughly double that of the index and earnings growth has been over 30 per cent higher. We also know that there is a strong synergy between the operational performance of portfolio companies and the growth of their products and services that are contributing to a more sustainable and inclusive world.

On the other hand, we recognise that we are falling short on one of our dual objectives: to deliver investment returns of over 2 per cent per annum ahead of the benchmark over rolling five-year periods. We know that we are not hired to hug an index and that running a focused, high-conviction portfolio means that annual returns will look very different to the broader market. However, we also know that delivering on our long-term goals matters, and we are committed to doing so.

This letter outlines our thinking, recent performance drivers, and why your portfolio’s positioning gives us optimism for the years ahead.

Looking back at 2025: AI is everywhere

It’s notable that, despite 2025 being a year of significant geopolitical fragility, rising trade tensions and continuing societal polarisation, it is a general-purpose technology that has dominated the market narrative. Put simply: AI is everywhere. Two aspects of this have mattered to relative performance.

First, equity market leadership is increasingly concentrated among a handful of mega-cap tech stocks, whose valuations reflect strong operational performance and the sheer number of investors chasing exposure to artificial intelligence. When trillions of dollars flow into a handful of stocks trading at premium multiples, it’s doubtful whether the index remains a barometer for diversified market performance. Arguably, it becomes more of a bet on whether these often highly valued AI leaders can sustain operational momentum and deliver relative to what’s already baked into lofty valuations. 

Second, we acknowledge AI as the most consequential technology of the era, believing it will create trillions in value in the decades ahead and help to solve some of the biggest challenges of our time. Simultaneously, we recognise market areas where froth is bubbling. Both statements can be true.

Accordingly, our exposure is deliberate and differentiated – seeking to capture areas of the value chain where long-term returns and positive impact will accrue while avoiding the worst valuation excess.

We are relatively under-exposed to the ‘Magnificent Seven’. While this has contributed to the performance gap over 2025, we are confident in this positioning.

We maintain stock-specific conviction in Microsoft, having taken a position in late 2024. Its near-unique exposure to every layer of the AI value chain, from physical infrastructure and partnerships with model developers, to end‑user applications and distribution partnerships, creates a robust competitive position. Microsoft is a leader in responsible AI and its significant investment in digital infrastructure and connectivity in middle- and low-income countries contributes meaningfully to the United Nations Development Programme’s digital acceleration agenda.

Progress through 2025 has been encouraging – the company is scaling its AI infrastructure, increasing it 80 per cent over 2025, with plans to double it again within two years. Given that the deployment of its AI services is being constrained by capacity rather than demand, we’re comfortable with this investment.  

To complement this, we have broad holdings across the entire value chain. We must remember that AI is backed by physical infrastructure to power the data centres. In May, we initiated a position in Prysmian, which is transitioning from being a traditional cable manufacturer to a sustainable solutions partner for the AI economy. Western energy capacity and grid connections are becoming the key infrastructure bottleneck, supporting Prysmian’s near doubling growth in data centre sales.

Long-term holdings ASML, with its critical lithography tools, and TSMC, with its advanced manufacturing capabilities, play a crucial role in the semiconductor value chain and the further advancement of AI. Both have been positive contributors over the year, delivering strong revenue growth at attractive margins, while technology enhancements have further reinforced their positions.

Two aspects of these businesses are particularly attractive. Firstly, they are AI technology agnostic: in the fast-evolving AI ‘chip-race’ their products are used by all the ‘runners’. Secondly, while they are exposed to AI, they are not dependent on AI for their business growth – both have entrenched competitive moats in traditional semiconductors which remain critical for digitalisation.

Finally, the portfolio contains multiple companies using AI to generate revenues, enhance their propositions and drive operational efficiencies. Returns among these names have been mixed. Shopify has been among the strongest contributors with accelerating top-line growth, widening profitability, and the rapid deployment of AI across every layer of its commerce stack. Conversely, Duolingo has been among the bottom contributors, with investors anxious about near-term user growth and competitive pressure from general-purpose AI platforms.

Ultimately, we think the market underestimates Duolingo’s ability to utilise AI to expedite its development of learning content, personalise its learning proposition and open new revenue streams. Based on this insight, we made an addition during the fourth quarter.

Beyond AI

As you’d expect, your globally diversified portfolio provides access to structural growth stories beyond AI. Companies across our impact themes are generating attractive returns while helping to solve long-term challenges.

Healthcare and quality of life is a philosophically important theme for Positive Change. We’ve held biotech Alnylam since inception: it develops highly innovative drugs based on a breakthrough biological discovery known as RNA interference. Alnylam was among the year’s strongest contributors, with strong early traction from its cardiomyopathic amyloidosis treatment driving the company to increase annual guidance. We trimmed the holding several times on share price strength.

Pharmaceutical company Sandoz also saw strong share price appreciation. It specialises in producing off-patent medicines which play an important role in ensuring affordable and widespread access to healthcare. It has an edge in producing complex biosimilars – a market which is poised for growth as more biologic drugs come off patent.

By contrast, Dexcom’s share price detracted meaningfully as operational execution missteps and scrutiny around product oversight weighed on the share price. We’re studying the business for signals of operational recovery and remain excited about the opportunities both in the core diabetic market but also in the potential to use its monitoring technology for health and wellness.  

Financial inclusion is another key impact theme in the portfolio – we have long believed that the ability of individuals and businesses to access appropriate affordable and timely financial products is critical to boosting prosperity. Latin American Nu bank was a top performer as the market continued to recognise the scale and profitability potential of digital banking models serving historically underserved populations. Despite the company’s impressive growth, around 40 per cent revenue growth versus the prior year, its market penetration leaves ample scope for further upside.  

The remittance provider, Remitly was a notable detractor, despite delivering over 25 per cent revenue growth year-on-year and attractive unit economics. The stock suffered from investor anxiety regarding take-rate compression and potential disruption from stablecoins. However, this narrative overlooks Remitly’s use of stablecoins in treasury management, customer disbursement networks and digital wallet integration. Remitly could potentially turn a perceived threat into a long-term tailwind.

Overall, we’re satisfied with the meaningful operational progress from many holdings, which has powered the year’s strong absolute returns. We certainly don’t manage the portfolio to deliver results over a single year; however, rest assured, we are not shying away from the challenge of 2025’s relative underperformance and the need to improve the strategy’s long-term record.

Effective process enhancements

In response, over the last few years, we have implemented deliberate enhancements to our process. Our philosophy remains unchanged while we’ve worked to reflect on learnings and adapt our processes without overcorrecting.

Four key areas of focus were: enhancing valuation discipline, sharpening sell discipline, ensuring resilience and accelerating idea generation. Having now operated within these new parameters over the course of 2025, we can offer tangible examples of their impact.

We implemented greater systematic valuation discipline, utilising granular valuation heatmaps, and more rigorous upside analysis. This work has contributed to the reductions in Alnylam, Shopify and Nu, as well as exits from long-term positions in Tesla and Xylem.  

We made milestones and red flags clearer, so that ‘waiting for proof’ does not quietly become drift. This was pivotal in the sale of our long-standing holding, Moderna, where we ultimately became frustrated by the underwhelming commercialisation of its RSV vaccine and the development pace of its late-stage pipeline.

In an uncertain world where the macroeconomics environment is unpredictable and policy risk is rising, resilience is important. We favour companies whose management can demonstrate the ability to navigate change. We like companies that are ‘in charge of their own destinies’ and those which have balance sheet strength and the ability to generate cash. Where the outcome is less certain, but the upside is potentially vast for a company, we have introduced smaller ‘incubator’ initial position sizes for early-stage holdings, such as health care companies Procept BioRobotics and BilliontoOne .

Aggregate-level resilience has also been assessed. That only a small proportion of holdings (around 8 per cent) combine negative earnings and negative cash flow is indicative of a high-quality portfolio that can withstand a range of operating environments.

Finally, we’ve worked hard to enhance the flow of new ideas in terms of pace and quality. Maintaining a high level of competition for capital is a key ingredient for effective portfolio management, and it has been satisfying to see this demonstrated by the new purchases. We have invested in 18 new ideas during 2024 and 2025. As a result, annual turnover has ticked up to 26 per cent over 2025 – which is higher than our average but still entirely consistent with a long-term time horizon.

The eight new ideas in 2025 deliberately cover a diverse range of geography, sector, company size, maturity and impact theme.

In Social Inclusion and Education, this has included Kaspi, a Kazakhstani super-app enabling financial and social inclusion, while Asian life-insurer Prudential is providing critical insurance services to the emerging middle class in the region.  

Within in Environment and Resource needs, we want the winners from the energy transition and have deliberately broadened our focus to include the pick-and-shovel enablers – businesses that make electrification and efficiency physically possible at scale, such as the aforementioned Prysmian.

October’s purchase of CATL, which sits at the epicentre of the battery value chain, is another example. It is the global leader in lithium-ion batteries and rapid demand is being driven by the electrification of transport. It is also a leader in energy storage systems which are experiencing increasing demand from renewable energy installations and data centres.

Our new position in compute platform ARM also provides exposure to the energy efficiency demands of advanced compute – its technology is optimised for low power draw.  

Finally, healthcare continues to be a rich hunting ground. Alongside, new investments in Sandoz (generic pharmaceuticals) and Procept (surgical robotics focused on urology), in November we participated in the IPO of BillionToOne, which provides blood tests for prenatal and cancer diagnostics.

The culmination of these decisions is the portfolio’s increasing operational superiority versus the benchmark: three-year forecast earnings growth remains ahead of the benchmark by over around 50 per cent. Importantly we are not overpaying for this superior growth: the portfolio’s price-to-earnings-growth ratio is below the benchmark (1.3x vs 1.5x).

The data continues to tell us that over the long term, share prices are strongly correlated with fundamentals, and these metrics give us confidence that, despite the soft relative returns in 2025, the decisions made this year have positioned the portfolio for strong future growth.

Innovation and the 2025 Nobel Prize

Our thesis is straightforward: innovation and entrepreneurialism are the twin engines of economic and societal progress. Today, these are required more than ever.

The economics profession underlined this idea in a way we found particularly relevant. The 2025 Nobel Prize in Economic Sciences was awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt “for having explained innovation-driven economic growth” and the role of “creative destruction” in sustaining it.

“Creative destruction” could be mistaken for a buzzy slogan. But doing so misses its importance. The greatest prizes go to businesses that convert R&D into better solutions, displacing inferior ones, solving problems for customers, and, ideally, benefiting society. This enables them to capture a significant market share and compound over time. This process is often faster than people anticipate.

We’ve long considered our job to be owning businesses in which these dynamics are strongest and paying a price that leaves room for generating returns. Based on this analysis, your portfolio has numerous examples.

Consider Vertex building transformative therapies that could replace regimens focused on managing symptoms. Over the last twelve months, it has expanded its cystic fibrosis franchise, while also introducing a revolutionary one-time gene-edited therapy, CASGEVY, which has provided curative infusions to 29 patients with genetic blood disorders.

Or Joby Aviation, developing all-electric air taxis that could transform urban mobility and urban pollution. Over the year, it conducted more than 850 flights covering 50,000 miles – more than 2.5 times the number in 2024.

Our portfolio monitoring reminds us daily of the powerful problem-solving potential that innovation offers. So, we invest with optimism, seeking to capture both financial and social rewards.

Your investment in Positive Change is an active choice to fund and align with this purpose.

Conclusion: optimistic, rational, necessary

The problems we focus on are not passing storms. They are structural, serious and persistent. They persist through political and market cycles, regardless of the daily headlines.

We are not saying this to be dramatic: we are being honest. If these problems are durable, then investing in scalable solutions is not a niche preference. It is a practical response.

We anchor Positive Change around areas of long-term, strategic need. Despite some significant progress over the past few years, these remain pressing, both at the global societal level and for those individuals directly affected.

We could illustrate this with numerous startling metrics, but selecting a few:

• Climate and resource pressure: Atmospheric CO₂ is at its highest level in at least two million years, and the increase from 2023 to 2024 was at a record pace.
• Financial exclusion: Adults without an account fell from ~2.5bn (2011) to ~1.4bn (2021), yet that still implies roughly one in four adults globally are unbanked.
• Education and skills: Global literacy has meaningfully increased to roughly 87 per cent today, yet hundreds of millions still cannot read, and millions of children remain out of school.
• Healthcare access and outcomes: Over half of the world does not have full access to essential healthcare services, and only 5–10 per cent of identified rare diseases have any approved treatment, affecting hundreds of millions of people.

These problems are not going away. So, how will we rise to meet them? Standing still is not an option. Cynicism and fatigue, while understandable, are not a plan. The only route that scales to meet today’s challenges is continued innovation and investment.

Entrepreneurial, innovation-driven solutions remain the only realistic path to durable progress at scale. The 2025 Nobel recognition of innovation-driven growth is a valuable reminder that progress is not automatic, it is built, tested, and adopted.

Positive Change offers coherent means to access this.

We will remain optimistic about the future, excited by our rich research pipeline but disciplined regarding price, risk and portfolio construction.

We cannot promise a smooth path. But do offer a clear one: continuing to invest with conviction in a small number of exceptional businesses, which can deliver the progress society badly needs, while providing attractive investment returns.

Past performance

Annual past performance to 30 September each year (%)

Annualised returns to 30 September 2025 (%)

Source: FE, Revolution, MSCI. USD. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. Since Inception: 3 January 2017.

Positive Change composite is more concentrated than MSCI ACWI Index (in sterling) plus at least 2% per annum over rolling five-year periods.

Past performance is not a guide to future returns.

Legal notice: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Important information

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in December 2025 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for Profit and Loss 

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated. 

The images used in this communication are for illustrative purposes only.

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